How Solar Panels Affect Getting a Mortgage

Putting solar panels on your house can be a great way to save on your energy bill. Some homeowners even generate enough electricity to sell some of it back to the power company. However, you should know that the high cost of solar panels can cause problems if you’re trying to get a mortgage. Let’s take a look at how solar panel installation could impact your home’s financing.

The Cost of Installation

Solar panels can save you money on energy bills, but they can be quite expensive to install. Many energy companies offer substantial subsidies, but the cost can still be quite high.

Many people who purchase solar panels do so with the help of a loan, and others choose to lease their systems to save on the cost of installation. That’s where solar panels might start to cause problems where your mortgage is concerned.

Implications for Your Mortgage

Liens

If you’re not buying your solar panels with cash, the solar panel manufacturer may place a lien or Uniform Commercial Code filing on your property to make sure you keep paying for your solar panels.

Unfortunately, when you go to refinance or sell the property, it’s generally trouble to have any kind of lien on your home. Many solar panel manufacturers will be able to remove the lien and uninstall the system entirely in the case of a sale. If you’re refinancing, you may be able to have them temporarily remove the lien. In any case, you should find out the manufacturer’s policy before having solar panels installed.

Additionally, your solar panel lease contract can’t have any provisions that interfere with the mortgage, including clauses that hinder the sale of the property. Your mortgage lender may also require that the manufacturer pay for any property damage related to the installation, malfunction or removal of the solar panels in the case of a lease.

PACE Loans

One type of loan that’s popular for financing solar panels in certain areas of the country is a property-assessed clean energy (PACE) loan. These loans are financed by local and state governments to facilitate energy-efficient upgrades, including solar panels. When you get a PACE loan, a lien is placed on your property until the loan is paid off.

Unfortunately, many lenders, including Quicken Loans, don’t allow you to get a mortgage with an existing PACE loan because PACE loans are structured to take precedence over the mortgage.

Other Considerations

If you’re financing your solar panels, any payments have to be included in your debt-to-income ratio (DTI). These payments are accounted for like any other bill, so you should keep in mind that a big loan with big payments can lower the size of the mortgage you can qualify for.

Solar panels also can’t be the only source of electricity on the property. All the major mortgage investors, including Fannie Mae, Freddie Mac, the FHA and the VA, require the property to have an alternate source of electricity. This is because the property won’t be considered livable if your solar panels fail and there’s no electricity.

One other item to note is that if you’re looking for a home with solar panels, you need to make sure that you actually get the panels with the sale. Many lease agreements allow owners to remove the panels and install them at a new property.

Are Solar Panels Worth the Trouble?

Let’s get to the bottom line and help you decide whether solar panels are really right for you. In order to figure that out, you have to consider installation costs, average energy savings and sales price.

According to the National Renewable Energy Laboratory, the average cost of a solar installation is about $3.09 per watt for a 5.2-kilowatt setup. If you do the math, that comes out to $16,068 in installation costs. The cost could be quite a bit lower if your state or local energy company offers incentives for installation.

The good news is that adding solar panels could likely boost your home value. According to a government-sponsored study from the Lawrence Berkeley National Laboratory, the average sales boost from the average solar panel installation is about $15,000. That means that your solar panels would more or less pay for themselves upon the sale of your home.

But how much could a solar energy system really save you on a monthly basis? That will vary depending on your location. The PVWatts® Calculator is a project of the National Renewable Energy Laboratory. You’re able to put in your location and the specs of the solar panel system you’re considering to find out how much you could save based on local retail energy prices.

If you find that a solar panel system won’t work for your finances, there are alternatives for you. For instance, you could buy into a community solar project. If you invest in a project controlled by the utility company, you could get your electricity at lower rates without having to deal with the financing problems. Or if solar panels aren’t for you, there may be other improvements you can make to achieve a similar effect.

Have you installed solar panels on your home? How has it worked out for you? Let us know in the comments.

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This Post Has 28 Comments

Hello
I am a Realtor in NJ and was just told my last transaction is falling apart because the USDA
mortgage Loan program does not give value added in their appraisal for “owned free and clear” by current seller. who paid 41k 5 years ago for the system.
Is there a way to appeal that ?
Thanks
Doris

You can always try to have the buyer appeal it. However, it’s likely not to go in the favor of the seller. The guidelines we have for all the major mortgage investors don’t include the value of the solar panels in the appraisal. I wish I could give you better news.

can a solar company file a UCC on your property if the solar panel where install but you never sing a contract with the solar company or approve the installation or was never informed of the process or enter into any type of contract with the solar company.

This sounds like a tough situation. What I’m reading is that you never requested or approved installation of solar panels on your home, but they were installed anyway. I’m not an expert on this subject, but I would recommend reaching out to the solar panel company directly and talk through your options. I hope this helps.

I have a home sold that has a assumable loan on solar for the new buyer ,but now the company says they will only let it be assumed if the new owner is a occ primary residence ,this is a second home .They are restricting the sale and causing great harm to all ,this was not fully disclosed to buyer when he bought the system .
What can be done ? any ideas

I have no idea what the rationale would be for that. Maybe they want to make sure they are properly maintained? My first thought is I’m not even sure whether that restriction would be illegal if it wasn’t disclosed. It would complicate things, but it might be a good idea to get a lawyer involved.

You could file a lawsuit under the Deceptive Trade Practice Act because in reality they were deceptive in nature by not disclosing those stipulations to you during the time of agreeing to their terms. I personally would consult a attorney that solely specializes in DTPA’s because those attorneys exist. Hope i was able to give you some insight because i am in the process of getting a home built and researching all my options and legalities involved. If you can share information with me as to the pros and cons of having solar panels installed i would very much appreciate it. I am looking as to what rebates and incentives are out there for me to take advantage of and to include searching for info if i can tie the solar installation price to my Veterans Home Loan

I am the solar installer. I am installing rooftop solar PV under leasing option but my customer’s house is under lien with a bank. Then can I file for UCC1 on my solar PV to protect the system during the time of foreclosure? If I do so, will I get any money from home foreclosure?

It’s hard for me to really give you a definitive answer that question, because every lender is different regarding their policies. Some don’t do lending on houses with solar panels, while some only do them if the lien is removed, etc. It’s my advice that you inquire with your clients who does their lending. You can then look into what the policies are and work something out with the clients to get some protection.

If you currently have a UCC, it doesn’t have to be subordinated and it’s not counted in your loan-to-value ratio, but with that being said, I want to make sure you get the right advice if you want to add it after the fact. You should talk to one of our Home Loan Experts at (888) 980-6716.

I would add that the “requirement “ to have another source of energy is also a bit misleading. In practically every state in the US you are required to be grid-tied. In other words you ALWAYS have source of electricity other than solar unless the grid itself is down in which case battery backup will solve that issue. Net metering is what resolves the issue of the “fickle sun” since the utility company installs a bidirectional meter that credits you for the energy you generate during the day and export to the power company. When you need energy at night or cloudy days you take back that credit. Systems today are designed based on OFFSET with the goal of reaching net zero. You produce enough to offset your consumption.

The answers. Above clearly show that those in the real estate and financial industries need to be educated on how solar actually works. This would go a long way in helping consumers to make more informed choices. Leading solar companies partner with lenders who not onl don’t place liens on the property but also successfully transfer solar loans to the new home buyer. This serves to make the home more attractive to buyers and mitigates the concern of having to pay off the solar loan prior to selling.

Hello all,
Lots to learn here…
I just spoke to a very experience realtor here in Connecticut.
She told me that once you install solar the homeowner won’t be able to get financing for the new buyers. So resale is not possible.
I just became a solar consultant and am very concerned about this so my question is ….
is my realtor friend correct?
Is she right???
Please advise.
Tom

It depends on how the solar panels are financed. If they are financed through a PACE loan, most mortgage lenders, including Quicken Loans, will not finance those because the requirements of the loan require that the mortgage be secondary to the lien for the solar panels. However, some solar panel companies provide their own financing and will temporarily remove the lien in order to allow you to sell the property or refinance. I hope this helps!

Tom,
Your realtor friend is absolutely correct. I have been a realtor for 13 years. Home mortgages used to be available to homebuyers about 8-10 years ago when it was suddenly discontinued.
I have a huge market of self-sustainable homes which when the Sellers wants to list/sell must be offered as cash only to the homebuyers out there. It is a very frustrating situation for everyone. The government wants everyone to conserve energy, in fact fanniemae/freddiemac even offer government backed loans for homeowners who want to add solar and upgrade other energy efficient items; the are the same one’s who are responsible for the discontinuation of a mortgage when the home is solar powered.

The only possible way to obtain a home mortgage loan for solar homes; the home MUST also be connected to normal delivery of electricity. If it is you can obtain a normal home mortgage loan. I say what’s the point. Yes you can generate enough power to sell back but in my case/area there is not the option of alternate electricity. I was told by a lender several years ago; it seems that those with very little knowledge (and happen to be the same people in power who regulate mortgage rules) of solar systems have fear that the risk is too high for the self-sustaining home. If there isn’t enough sun what does one do? They were afraid people would walk away from these homes and their mortgage debt. This is just not the case in my experience. More and more people want an off the grid lifestyle. When there isn’t enough sun there are wind turbines and generators. The lender says but what if the generator runs out of gas? If it does then these homeowners aren’t getting to work either. OMG! You could get hit by a car tomorrow too!
Until the mortgage regulators become much more educated in solar power I am afraid things will not change. For homes that are all solar powered with no electrical connection (just in case) the only options are to pay cash or obtain a loan from a private money lender.,

Hope this helps with any questions you may have had.

BTW for everyone else the question was not about the financing of the solar panels themselves it is about how one can sell their solar powered home when it is time to move!!!

literally all of this information is incorrect. no lien on homes with almost any company and no upfront cost. this article is way outdated. most companies install for free and dont place a lien on the home and you pay them a lower bill instead of paying your your utility company a higher bill.

I appreciate your comment. Of course you wouldn’t pay a higher bill to your utility company. You definitely save money with solar panels. There’s no doubt about that. In terms of liens, I don’t want to give the impression that every company places a lien on the property to install solar panels. The purpose of this article is to give clients some insight into these agreements and to let them know to be aware of the terms. I hope this clarifies things and I do understand that every situation is different.

—“My one counterpoint is that the sun is a fickle employee when it comes to actually showing up for work and breaking through the clouds at times.”

Kevin, Thank you for the thoughtful article. On an annualized basis (or even better a 25 year system-life), for a given geographic location, the amount of sunlight or solar insolation is very consistent and well-modelled. (PVWatts data, etc). It is exactly for this reason that bankers are willing to offer low costs of capital for solar photovoltaic projects (residential and utility scale alike). The equipment is proven, robust, pv is a mature technology, and highly bankable. As for requiring alternate or back-up power, that may be the case. In most instances a home is still connected to the grid for supply during non-solar periods. Over time, as prices decline, battery storage may play an increasing roll in providing backup power (either sourced from the grid or solar panels), or full self-supply power from solar panels alone. -Matt http://www.getsolar.com

Thanks for sharing, Matt! I don’t disagree with anything you’ve said here. It’s just that for the purposes of the mortgage, we’re not at a point where solar can be your only source of power. Investors want to make sure the house is livable should something happen where you can’t rely on the solar for a while.

I have a couple of comments. 1) PACE loans are only financed by local and state governments in California. In all other markets, it is 100% voluntary and privately financed, no governmental subsidies. This is very misleading and can be a huge turnoff to some who don’t want anything to do with a government subsidy. 2) Larry makes a great point. In the Texas PACE market, this is exactly what is taken into account. When we are looking to underwrite a PACE project, a full scale ASHRAE energy engineering report is put together to quantify the annual savings being generated to be used in a proforma to analyze the newly created cash flow and it’s effect on the building owner’s NOI and DSCR. 3) PACE “loans” only take seniority over the 1st lien holders in the event of a tax foreclosure. In addition, they cannot accelerate, so the only amount of money that becomes senior to the existing lien is the past due balance, not the entire principal balance.

Unfortunately, the major mortgage investors have chosen not to invest in homes with PACE loans because any debts that are past due on the PACE loan take precedence over the mortgage. It may only be part of what the investor could get in a sale, but they do have a responsibility to their stakeholders to recover as much money as possible. Because of this, most mortgage companies aren’t able to finance these loans. Larry does make a great point as far as energy savings. I just mean to say that you can’t have it be your only source of power should something happen, so we can’t take off the energy bill when calculating DTI.

What underwriting doesn’t property consider in vetting debt to income ratios is impact of utility bill payments. Homes with solar can virtually eliminate that payment and the underwriting process needs to start making that an integral part of its underwriting process.

It’s a fair point, Larry! My one counterpoint is that the sun is a fickle employee when it comes to actually showing up for work and breaking through the clouds at times. You can’t count on it to punch in everyday.

It completely makes sense, particularly in sunny Arizona. There are the energy savings, and if you own the panels, it can make your house more attractive in a sale. It just can’t be the only source of power because weather gets weird at times.